About 13 years ago, a United Kingdom-based home appliance manufacturer shifted part of its production to Malaysia, because of soaring labour cost. The move created 800 jobs in Malaysia at that time and brought a huge profit margin. Business is still soaring but Dyson is facing a shortageof engineers in the UK base where a vast amount of research and development is done. Britain is just not producing enough engineers and this is affecting productivity and businesses.

If you were to follow the business-goes-where-the-human-capital-is principle, it is likely that Britain and other countries in need of skilled workforce will be heading to a country or region that offers them this. Which could be the Asean Economic Community (AEC) if not for the fact that Southeast Asia is already grappling with an acute shortage of skilled workers.

AEC Needs More Skilled Workers

Businesses and investors have long been lamenting how they have to put up with shortage of skilled workers and poor quality of human capital, not to mention the lack of leadership skills. But Asean actually has a lot going for it. With the exception of Singapore’s ageing population and workforce, Asean has a generally youthful population with 23-35 years as the average age. The main problem is the education standards, which are below what is required to be skilled workers in multi national corporations (MNCs), except for the standards in Singapore. Which is why Singapore has the highest proportion of high-skilled employment, at 54 percent of its workforce while the regional average is 19 percent.

Malaysia, for the last 20 years, has been suffering from skilled workforce shortage and the government has poured billions of ringgit into skills training programmes and building facilities. Its skilled workforce is only at 25 percent and it needs to bring it up to 50 percent within the next five years to meet the ever-growing industry demand and remain competitive. A challenging task when only 10 percent of secondary school leavers opt for vocational training. Developed countries like Australia and South Korea have 40 percent students moving to skills training.

This year, both the 11th Malaysia Plan (2015-2020) and Budget 2016, tabled recently in the Malaysian Parliament, have listed human capital development as the core areas to be addressed. This is Malaysia’s attempt to move to a more productivity-based economy and be less a commodity-driven one, in the wake of depressing oil revenue.

The 11th Malaysia Plan is expected to create 1.5 million jobs by 2020, reducing dependency on low-skilled foreign workers. About 60 percent of the jobs that will be created are expected to require skills related to technical and vocational education and training (TVET). Under the proposed Budget 2016, RM4.8 billion (US$1.12 billion) is allocated to 545 TVET institutions and it will involve 330,000 trainees in various sectors including tourism.

“My concern is the lack of good and diligent technical teachers – we don’t just want quantity – and not enough quality graduates,” he tells AseanToday in an email response. He was once deputy secretary-general of the Finance Ministry and secretary-general of the Transport Ministry.

According to Tan Sri Dr Navaratnam, the root causes are: affirmative action and leakages. “This is a major problem. We need to get the best teachers and not be too concerned with the racial composition. We need to emphasise more discipline in spending and punishment for cavalier expenditure attitudes and mindsets.”

Employers and the business community have long argued that preferential treatment of bumiputras (Malays) is now more a bane than boon. The system, introduced in 1970, was meant to make Malays at par with the other races, mainly the Chinese, in terms of wealth generation and economic standing. This policy has come under great criticism for being an ineffective system for opening the door to abuse and encouraging a lackadaisical attitude.

“We need to move more deliberately towards more meritocracy and competition and less mediocrity – to succeed faster,” he adds. “It’s difficult to retain skilled manpower in Malayasia or attract them to work here when corruption and race and religious bigotry are significant negative and growing concerns.”

Benchmarking Against International Standards For English

Another system that has come under much criticism is education. “We have to strengthen our education system, especially at primary and secondary levels. We fair poorly in international scoring,” says Tan Sri Dr Navaratnam. “More English teaching is crucial to better learning and absorption of technology.”

In 1970, the medium of instruction in schools was changed from English to Malay. Over the years, the teaching of English had deteriorated and in 2003 the government introduced the teaching of Mathematics and Science in English. In 2012, this was phased out and Malay returned as the only medium of instruction much to the anger and disappointment of parents, employers and civil societies. They fear Malaysia will not be able to develop a workforce skilled in the language of commerce and technology.

It is these policies that stand in the way of Malaysia developing a sufficient and capable skilled workforce. Tan Sri Dr Navaratnam says: “We should not think that budget allocations alone matter most. We can allocate more and it can still be unproductive.”

Human Capital Flight

Now there is another issue that Malaysia has long been grappling with – a high rate of human capital flight. Brain drain is another reason for the dearth in skilled workforce and this is going to get worse as workers leave for greener pastures.

“Wages are also relatively low at the higher ends. So how do we get the and keep the best?” asks Tan Sri Dr Navaratnam. Malaysia’s growth in real wages has not increased substantially post-1997 Asian Financial crisis. This has caused many skilled workers and professionals to leave the country.

The problem could get worse as the ringgit drops and the cost of living is getting higher by the day.Singaporean businesses, the largest foreign investors in Iskandar Malaysia, are complaining that the weaker ringgit can make skilled workers leave the country and head overseas for higher wages.